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Perfectly Irrational Market Slides On News Spain Actually Not On Verge Of Default

Within seconds of the non-news headline (via Bloomberg) hitting:


The S&P 500 is crumbling, Oil is plunging, and EUR is selling off

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5 Year TIPS Price At Record Low -1.286%

Think NIRP is only allowed in select European countries. Moments ago the US Treasury sold a whopping for the series $14 billion in TIPS. The yield? A record low -1.286%, courtesy of TIPS being the only US debt instrument allowed to price at a negative yield (but not for long: JPM's new head of the London CIO divison Matt Zames who is also head of the TBAC is working hard at getting negative yields legalized across the board). The first time the Treasury sold TIPS at a negative rate was back in 2010, when it priced $11 billion at -0.55%. The comment back then: "It signals people’s expectation of the Fed being able to create some inflation with the QE program,” said Alex Li, an interest-rate strategist in New York at Deutsche Bank AG, which as a primary dealer is required to bid at Treasury auctions. “With nominal rates so low, in order have high TIPS breakevens you’ve got to have negative real yields on the five-year." It didn't then. It won't now. Of course, if the CPI were actually adjusted to reflect reality, then TIPS would be the best investment imaginable. As it stands right now, it will likely keep losing money until such time as the CTRL and P keys are finally superglued in the on position.

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Guest Post: Venezuela Ramps up China Oil Exports Unsettling Washington

The biggest geostrategic change of the past decade overlooked by Washington policy wonks in their fixation on their self-proclaimed “war on terror” is that Latin America has been throwing off the shackles of the Monroe Doctrine. These ignored developments may well soon refocus Washington’s attention on the Southern Hemisphere, as Venezuela’s President Hugo Chavez reorients his country’s to China. So, where does Washington go from here? If it wants to preserve its increasingly tenuous foothold in a nation with the world’s largest oil reserves, it might begin by engaging in some honest diplomacy.

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The Beginning Of The End For John Paulson?

Because redemption requests are like cockroaches: once one appears, assume many, many more:


Is this the beginning of the end for the former Bear Stearns M&A banker and once infallible hedge fund manager? And to think he could have saved himself all the deep fundamental work telling him Las Vegas real estate is "cheap" and just bought Apple. Hey, everyone else is doing it. And everyone else can't possibly be wrong. As for Paulson, whose GLD holdings, which are not an investment but merely a gold denomination share class, will likely quite soon see a substantial hit as he is forced to unwind GLD holdings as more and more external investors redeem until finally JP is just left running his own and his employees' money.

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Guest Post: Spreading Insolvency Around Does Not Create Solvency

The entire global financial "recovery" engineered by central banks and Central Planning is based on the absurd notion that if we spread unpayable debt over the entire body politic (be it a nation or regional entity such as the European Union) then that distribution will somehow make the debt payable and the phantom assets real. The debt remains unpayable and the assets (collateral) remain stubbornly phantom. As for adding more debt (selling Eurobonds, Treasury bonds, etc.), please note the diminishing return on additional debt: it is now negative.... Diminishing returns define the flailing financial system: the return on petrocapitalism is declining (how many barrels of oil or equivalent does it take to extract and process one barrel of shale-derived oil?), the return on more debt has turned negative, the yield on "saving" bankrupt States is marginal, and so on: spreading insolvency to the taxpayers does not magically create solvency, it only distributes insolvency to every nook and cranny of the economy.

All the debt remains painfully real; it is only the collateral that is illusory.

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Gold And Silver Surge Above 200DMA

The last few days have been 'different'. Equities have relinquished their role as QE-sensitizers as Treasuries and precious metals have taken the reins. Perhaps though, as CNBC's Rick Santelli noted earlier, Gold and Silver are acting as barometers of anxiety - as opposed to clarifying QE expectations - as we see both Gold (> $1650) and Silver (> $30) break above their 200DMA and trade back to near five-month highs.

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Slumping Commercial Real Estate Sales Are Latest Flashing Red Non-Recovery Indicator

Real Capital Analytics (RCA) released their US commercial real estate transaction data for July last night. The only way to interpret the data is - ugly. After a dismal June (down 33% YoY), July did not see any bounce and in fact plunged 20% YoY with transactions totaling $14.6bn. As Barclays notes, the takeaway is generally negative, as the growth trend has weakened considerably since March ( which was +62% YoY). What is interesting to us is that with Treasury yields so low, the cap-rate 'spread' makes commercial real estate relatively attractive and yet no-one's buying.

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Spam Saves The Day

Spam may or may not be a better investment than gold (tip: it isn't, and only those for whom the only solution to a record debt crisis is more debt can claim otherwise), but some things are certain: it is edible, it is cheap and it can be stored indefinitely. Which just happens to be great news for Spam maker Hormel, as these three qualities are precisely what saved its quarter. Per AP, strong sales of Spam and Jennie-O products helped Hormel Foods' net income rise in its fiscal third quarter. The meat producer's revenue came in just above Wall Street expectations.

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The European "No Action, Just Talk" Rumor Mill Is Back

Merkel must be back from vacation, cause Europe just fired up the all talk and no action rumor mill again.

  • Spain in talks with Euro-Zone over terms of sovereign aid, according to "sources" - RTRS

So far so good - this is to be expected by the country whose bonds are trading lower only because this has been priced in for the past month.  But:

  • No final decision has been made by Spanish authorities to request a bailout  - RTRS. So.... no news?
  • No decision expected before September 12 at the soonest, politicial negotiations to intensify on September 14 or 15 - RTRS. So... no news because the ESM which is critical to the Spanish bailout is contingent on the German constitutional court. But hey - let's pretend like someone is doing something
  • Preferred option is EFSF buying Spanish bonds on primary market, ESB buying in secondary market - RTRS. So... the EFSF whose 4th largest backer is Spain will be buying Spanish bonds, and the ECB, which Germany has just said 9 to, will be buying more bonds?
  • Discussions being held at the technical level, focus on conditions, monitoring. So.... more talk and absolutely no action, with Spain as usual demanding no conditions to its bailout, while Germany and the Troika telling Rajoy he has to essentially resign and work for the IMF when he tells the world that Spain is broke.
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What's Wrong With This Chart?

One (and by one, we mean the incumbent presidential candidate) can only hope that consumer comfort tracked by Bloomberg is not a leading market indicator... Of course, with Wall Street now solidly on the side of Mitt Romney, and well aware it needs to crash the S&P ahead of November if Romney is to have a running chance, this may well be the case.

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Spot The Housing Bottom: New Homes For Sale Drop To Lowest Ever; Average New Home Price Plunges To 2012 Lows

Looking at the headline number in the just released New Home Sales data one would be left with the impression that the tepid "recovery" in housing may be chugging along: after all with a seasonally adjusted annualized 372,000 new homes sold in July, this was an improvement to the revised 359K in June (ignoring that the US housing market at best continues to drag along the bottom). This impression, however, promptly changes when one looks at the underlying data. The reality: the actual number of new homes sold in July was 34,000, the same as in June, and the lowest since March. Of this, a massive 3,000 (yes, three thousand) homes were sold in the Northeast in the entire month. Where things get worse is when one looks at the number of new homes for sale. At 142,000 (of which just 38,000 actually completed), this was the lowest number. EVER. And finally, to ruin all hopes that the housing bottom may mean an actual pricing bottom, the median new home price slid to $224,200, down from $229,100 in June, and the lowest since January, while the average home price declined from $266,900 to $263,200. This was the lowest average price posted so far in 2012.

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BIG Selling Lots

If there was ever a sign that our economy, from the bottom-up, is running on fumes, it was Big Lots' dismal earnings and even more dismal outlook. The discounter is now down 21% back to 12 month lows...

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Greece Ready To Start Selling Its Islands

A year ago the mere mention of Greece selling its real estate, let along its prized islands, was enough to fill Syntagma square with tear gas, laser light pointers and the occasional riot dog. Now - nobody cares, which is why the statement by Greek PM Samaras that he is ready to start selling Greek islands was largely met with a yawn across the investing world.

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Newsflow Sentiment Confirms Global Recession

The last few months have seen a rapid deterioration in economic newsflow. SocGen's newsflow indicators, which capture sentiment regarding trends in the underlying economy (based on the balance of economic strength and weakness in newswire and newspaper articles) typically leads the economy by around three months. Currently, this intriguing indicator suggests a notable drop off in global industrial production - and furthermore, while Fed/ECB anticipation has dragged market-implied inflation expectations up, newsflow has biased towards deflation rather notably in the last few months. It seems that rather than being the chess pieces of global central planners, we really do have minds of our own and act in our own best interest.

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Gold And Platinum Surge As Mining Unrest Spreads

Industrial unrest hobbling the South African platinum industry deepened yesterday, prompting fears of a broader mining crisis in one of the main platinum and gold producing countries. Platinum and gold prices continued to soar partly due to real concerns of supply disruptions after 44 people died during strikes at a pit owned by  Lonmin. About a fifth of global platinum production capacity is idled in South Africa today as the nation holds a day of mourning for 44 miners and policemen killed in the deadliest police violence since apartheid ended (see Newswire). Massive discontent has spread to two other important platinum mines. Amplats, the world’s largest platinum producer that is 80% owned by Anglo American, disclosed it had received demands for pay rises at its Thembelani mine. Meanwhile, another miner, Royal Bafokeng, said about 500 people were protesting outside its Rasimone mine, and preventing others from going to work. It seems likely that the protests will spread from the platinum sector, to other sectors, including the gold mining sector.

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